NZ dollar falls below 70 US cents for the first time in almost 5 years after RBNZ cut

Friday 12th June 2015

The New Zealand dollar fell below 70 US cents for the first time in almost five years after the Reserve Bank began cutting interest rates earlier than some had expected yesterday.

The kiwi touched 69.65 US cents overnight, the first time it has fallen below 70 cents since Sept. 1, 2010, and was trading at 70.18 cents at 8am in Wellington, from 70.17 cents at 5pm yesterday. The trade-weighted index edged up to 73.21 from 73.12 yesterday and 74.99 immediately before the Reserve Bank's announcement.

The New Zealand dollar tumbled yesterday after Reserve Bank governor Graeme Wheeler cut the benchmark interest rate by 25 basis points to 3.25 percent. The market was divided ahead of the move on whether Wheeler was likely to reduce rates as early as this month's meeting with just six of 16 economists predicting the move. Now the easing cycle has begun, speculation is turning to how many more cuts Wheeler may have planned.

"Now the bank has chosen to start an easing cycle, we do not believe yesterday’s cut will be a ‘one off’," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "We expect a follow up cut at the next meeting in July and see around a 50 percent chance of a further cut in September.

"The New Zealand dollar will likely continue to lick its wounds today."

BNZ has lowered its forecast for the local currency to 68 US cents by the end of the year, from a previous expectation of 70 US cents, and expects the kiwi to be trading at 66 US cents by the end of 2016.

In the near term, the kiwi has support at 69.50 US cents and faces resistance at 70.50 cents, BNZ says.

In New Zealand today, May data is scheduled for release on food prices and manufacturing.

In the US, the focus will be on a consumer confidence report after buoyant retail sales data for May was released yesterday.

After its slump during the day yesterday, the New Zealand dollar consolidated against most major currencies overnight.

The kiwi edged up to 90.37 Australian cents from 90.31 cents yesterday, advanced to 62.27 euro cents from 62.08 cents, slipped to 45.20 British pence from 45.28 pence and increased to 86.63 yen from 86.45 yen.

BusinessDesk.co.nz

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